Skate-Wear Central

Reebok Premium

Stocks – Are They Nothing More Than Pieces of Paper?

Contrary to popular belief, stocks are not just pieces of paper. When you own a portfolio of stocks, you really own tiny fractions of several companies.

If you think that this isn’t the case, just ask the lucky owners of Petco or Reebok stocks. In each company’s case, a larger company wanted to buy them. The only way to take over a company with publicly traded stocks is to buy all of the shares.

If you had Petco and Reebok stocks at $20 and $35 apiece, would you sell them to a larger company for less than that? Of course not. For $20 and $35? Probably not, since if you wanted those prices, you could have sold your stocks in the open market.

The only way for larger companies to take over smaller ones is to offer a premium to the owners of their stocks. In Petco’s case, for example, the stockholders received a 50 percent premium. That means if you had $10,000 worth of Petco stock, the very next day you would have had $15,000. Not bad for a day’s work!

Big profits like this can only happen when you take the initiative to start investing in stocks. But if you still think that stocks don’t have real value, read on.

What Gives Stocks Their Value?

Stocks go up in value because they are in demand. Stocks go down in value because they’re not in demand. This is the simple truth, but a misunderstanding of it leads to the notion that stocks are “just pieces of paper.”

Sometimes, stocks have an increased or decreased demand for no good reason. But the root value of stocks can be found in the value of their underlying businesses.

Stocks in Action – Fed Ex

For example, take a look at fairly stable company like Fed Ex (ticker FDX). It had annual profits of $1.8 billion in 2005. Since Fed Ex has 305 million shares of stock outstanding, this equals about $5.90 earnings per share (EPS).

Fed Ex’s share price is around $112 per share. This means it’s P/E ratio is about 19 (112 / 5.90 = 18.98), which is about the average P/E ratio for stocks in the S&P 500.

When you own a share of Fed Ex, you own a share of its profits. You own a share of the cash in its bank account, and you even own a share of its property, plant, and equipment. In the case of Fed Ex, you own a share of each of its trucks!

Now of course, if you own 100 shares of Fed Ex, that’s only 100 shares out of more than 300 million – even a million shares ($112 million worth) would be less than 1/3 of 1 percent of the company! In other words, your one share doesn’t entitle you to much decision-making power with what is done with that $5.90.

You might like them to buy more trucks, advertise more, or maybe even send you the check for $5.90 (a dividend). But you’re just a little guy, and nobody listens to the little guy. You can, however, vote in shareholder elections to decide the corporation’s board of directors.

The owners of stocks oversee the board, the board oversees the CEO, and the CEO oversees the company. That’s how owning stocks works.

The Real Value of Stocks – When Stocks Buy Other Stocks

So you can’t decide what to do with Fed Ex’s $5.90 in profits, because you only have 100 votes out of 305 million (you get one vote per share of stock that you own). But you know who could decide what Fed Ex would do? Someone who owned all 350 million shares.

Let’s say that the stock market took a real nose dive for some reason. That can happen. But let’s also say that Fed Ex’s business kept rolling along, generating profits in the $1.8 billion range like it did in 2005.

How low could the stock go? Imagine the stock went from $112 all the way down to $45. Now its P/E ratio would be 7.6 (45 / 5.90 = 7.6), assuming it continued to generate $5.90 in earnings per share. At this price, the entire Fed Ex company might be an attractive acquisition candidate for someone like UPS.

If UPS bought all 305 million shares of Fed Ex, it could do whatever it wanted with that $5.90 – it would be money in the bank. Better yet, by reducing competition and eliminating some overlapping costs, that $5.90 per share could easily turn into $6.50.

So how much would you sell your $45 share of Fed Ex for? Less than $45? Of course not. You’d be surprised, but UPS might be willing to offer as much as $65, if it thought it could get Fed Ex’s profits up to $6.50 (thereby recovering their investment in ten years).

Now you might be saying, “Hey, wait. I bought the stock at $112 and I’m supposed to be happy I can sell it for $65?” That’s not the point. The point is that stocks do have real value. If you’re a conservative investor, you want to buy stocks that are already beaten down and could potentially become acquisition candidates.

Just the possibility that someone could acquire an entire company keeps stocks from falling too low. And that’s what makes stocks more than just pieces of paper.

About the Author

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at
Stock Picks
(All is Free)

SNEAKER FIENDS UNITE! NYC TOUR 11.15.08 pt.3

Womens Olukai Kumu Sandals $79.95 Kumu OluKai Womens Sandals Premium leather straps Soft pigskin strap lining Woven nylon post Premium leather top Anatomical EVA midsole

Mens Quiksilver Grail Tee $28 The Grail Tee is from Quiksilver. Legend has it that nothing’s more sacred than a Grail premium tee. Except mabye two Grail premium tees

Women’s Reebok Fashion Trac $33.99 Premium waterproof leather upper for lasting comfort; Spikeless sole is rubber with tread engineered for uphill and downhill traction; Lateral stability bar; Full-grain leather lining; Antimicrobial footbed prevents bacteria growth and foot odor; Ortholite comfort insoles;

Mens Islanders Burnout V-Neck Tee $22 The Islanders Burnout V-Neck Tee features the Islanders logo and and a v-neck collar all on a premium cotton shirt

Mens Olukai Hiapo Sandals $99.95 The Hiapo Sandals by Olukai bring you superior comfort and style with premium leather and laser detailing.

Mens Southern Tide Original Skipjack $32.5 The Southern Tide Original Skipjack Tee is a premium cotton tee that looks good on the boat, the boardwalk, or out on the town

Mens Olukai Akua Sandals $149.95 The Akua is a premium full grain, Italian leather sandal with hand-sewn toe post.

Mens Hurley Bizurk Mini Stripe Tank $32 Bizurk Mini Stripe Tank by Hurley is the premium of all tanks. Put it on and not only will the color knock you out but the comfort will too. Oh my, it’s so soft.

Womens Rainbow Sandals Single Layer Narrow Strap White Crystal $79.95 Frost your feet with the best! You love your Rainbow Sandals, and you love Swarovski Crystals.. so it only makes sense to combine the two. Packed with comfort like the original Premium Leather Rainbow Sandals, the Crystal Rainbow Sandals bring class and beauty to a sandal that you already love, but will love so much more when they sparkle! SIZING NOTE: Sizes small through extra large in the womens Rainbow Sandals run true to size, however, the sizes ten and eleven run larger and wider than average because they are made from a mens footbed. Please see our Rainbow Sandals sizing chart for more information. NOTE: PLEASE DO NOT USE PETROLEUM OR OIL BASED CONDITIONER, CLEANER, SEALER OR ANY OTHER TYPE OF CHEMICAL ON THE LEATHER SURFACE OF RAINBOW SANDALS. DOING SO WILL CAUSE UN-REPAIRABLE DELAMINATING AND SUCH DAMAGE IS NOT COVERED UNDER THE RAINBOW GUARANTEE

Premium $55 Nothing but the best goes into the SKECHERS Premium shoe. Soft, smooth nubuck leather upper in a lace up casual sneaker with classic SKECHERS design, stitch and overlay accents.

Women’s Reebok Retro Aztec $31.99 Leather and suede upper is comfy and stylish; Designed by Scarlett Johansson for Reebok (and you!); Durable rubber outsole for great traction; Classic Reebok style revamped for a brave new century; EVA midsole and padded insole offer cushioning;

Men’s Reebok Berlin $35.99 Perforated leather upper features classic Reebok style jazzed up with an argyle pattern on the ankle; Lace up design for a perfect fit; Non-marking rubber outsole for dependable traction; Padded ankle and footbed for increased cushioning;

Premium – Premix $52 Remake your look with the sporty SKECHERS Premium-Premix sneaker. Smooth leather upper in a slip on casual sneaker style, with stitching and logo detail, stretch front panel. Cushioned insole, traction outsole, 1 1/2 inch heel.

Men’s Reebok ERS 2000 $52.99 Fresh take on the classic Reebok runner from the early 90s; Durable rubber outsole provides great traction; ERS (Energy Return System) helps to keep you spry and perky; Padded, fabric-lined leather upper is stylish and comfortable;

Women’s Reebok CL Montevo $33.99 Supple synthetic leather upper for a lightweight feel and stylish look; Timeless Reebok Union Jack logo on upper for instant coolness; Cushioning EVA midsole absorbs shock for a comfy ride; Durable rubber outsole in classic track-style for superb traction; Fabric lining offers a cool fit;

Men’s Reebok Daddy Yankee – Soccer $31.99 Part of Reebok’s Music collection, featuring Daddy Yankee; Soccer-inspired design for casual, everyday wear; Leather and suede upper is stylish and supportive; Traction-patterned rubber outsole for great grip; Padded, fabric lined upper and footbed for cushioning;

Women’s Reebok Pro Legacy Mid $29.99 Classic Reebok style with insane touches of individuality; Durable rubber outsole provides great traction; Leather upper with leopard prints and iridescent accents; Full lace up style with multi-colored laces for extra pizazz; Mid-hi design for great agility and support;